Equilibrium Technology Diffusion, Trade, and Growth
Michael E. Waugh
- American Economic Review (Forthcoming)
We study how opening to trade affects economic growth in a model
where heterogeneous firms can adopt new technologies already in use by
other firms in their home country. We characterize the growth rate using
a summary statistic of the profit distribution—the mean-min ratio.
Opening to trade increases the profit spread through increased export
opportunities and foreign competition, induces more rapid technology
adoption, and generates faster growth. Quantitatively, these forces produce
large welfare gains from trade by increasing an inefficiently low
rate of technology adoption and economic growth.
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